Modi plays three-way game with China, Japan

SAIBAL DASGUPTA, Contributing writer

BEIJING -- By the time Chinese president Xi Jinping meets Narendra Modi, India's new prime minister, at the BRICS summit in Brazil on July 15, Beijing will hope to have persuaded India to soften its resistance to Chinese companies.

India is witnessing a rare charm offensive by China, its friendly demeanor at odds with the image nurtured in some quarters in India of an increasingly powerful and arrogant neighbor.

On June 8, around two weeks after Modi took office, Chinese Foreign Minister Wang Yi paid a visit to New Delhi. Observers of India's foreign policy believe the country unlikely to be beguiled by China in weeks, or even years. Nevertheless, there are signs the diplomatic push is showing results. The Modi government has taken an "in principal" decision to build industrial parks exclusively for Chinese investors in India, something Beijing has long wanted.

This is a major improvement, from China's point of view. Wang at first seemed to have returned empty handed. The visit appeared long on bonhomie, but short on business specifics. Before setting out for India, Wang said in a newspaper interview the potential for India-China ties was "just like the emerging tip of a massive buried treasure that awaits your discovery."

That potential was underscored by the opening of Mumbai's first subway system on the very day of Wang's arrival in India. Built by Reliance Anil Dhirubhai Ambani group, the project was financed in part by a $1.2 billion loan from state-run China Development Bank.

China is excited by Modi's promise to build 100 new cities, a pledge which, if fulfilled, would open up vast opportunities for construction companies, equipment suppliers and services such as finance. The plan is expected to more than double the previous government's $1 trillion infrastructure spending target.

In New Delhi, the Chinese foreign minister pushed for projects like industrial parks specifically built for Chinese investors, and the proposed China-Myanmar-Bangladesh-India eastern corridor. But India's new leaders were reluctant to tip their hand on the proposals. Wang tried to address India's complaints about its huge $31.4 billion trade deficit with China, promising to buy more Indian exports, without going into specifics. The two countries' total trade was $65.5 billion in 2013.

Although Chinese officials and media have repeatedly praised Modi's businesslike qualities, the Indian prime minister seems to be paying more attention to military and border issues. He made Bhutan, the Himalayan kingdom that nestles between India and China, the first stop on his foreign itinerary.

Rain check

India's sudden coquettishness toward China hints that the new government intends to milk its lucrative infrastructure market for all it is worth. There is little doubt India needs China's capabilities and money, but there are also signs it will hedge its bets by inviting Japan and the Association of Southeast Asian Nations into the game as well.

Modi had been expected to visit Tokyo on June 3 and 4, making it his second overseas destination. But with the Indian government deciding to hold a crucial budget session in Parliament at that time, he is now expected to postpone the Japan visit until the second week of August. With Modi scheduled to attend the BRICS summit in Brazil on July 15, along with Russia, China and South Africa, Japan's Prime Minister Shinzo Abe appears to have slipped down Modi's must-see list.

Indian analysts say this is not a slight against Abe, but reflects Modi's emphasis on being in Parliament when the government presents its first budget. "I don't think this will lower the importance of Japan. In fact, Japan has never been as important for India's foreign policy as it is today," said Jagannath P. Panda, a research fellow at the Institute for Defense Studies and Analyses, a New Delhi-based think tank. "This has to do with (on-the-)ground realities, as well as the personalities of the two leaders, Modi and Shinzo Abe. Both are authoritative and decisive," he said.

The delayed meeting might actually be useful, because India is going through a "deliberate reassessment of its policy towards Japan," he said. "Modi will carry forward his Japan linkages that were evolved during his tenure as Gujarat chief minister to the national level," Panda said, referring to Japanese investments in Modi's home state.

Tokyo is capable of meeting some Indian requirements that other countries, including China, cannot. "There is the trust issue with China. We have no issues with trust, or security issues with Japan," he said, referring to India's reluctance to buy telecom equipment from China.

Love triangle

Modi's Japan visit is likely to cause China to wrinkle its nose, but he seems unbothered. The agenda for Tokyo and New Delhi will definitely include potential business deals, and Japanese companies will have to decide if they want to battle their Chinese counterparts for a slice of the Indian market.

"We expect a lot of progress in India-Japan business during the prime minister's Japan tour," said Mukesh Patel, president of Indo-Japanese Friendship Association. "India can best use China in the trading area, but you need high technology standards in manufacturing, and this is where Japan will be most useful to India," Patel said.

The Japanese have been reluctant investors in India up to now, complaining about red tape and restrictive labor practices, particularly after carmaker Suzuki Motor encountered unrest at an auto plant near Delhi. During his visit, Modi's team is expected to gauge whether Japanese companies can be trusted to fill the financing gap if India chooses to go slow on Chinese investment, sources said.

It is customary for the president to read out a new government's agenda in the Indian Parliament. President Pranab Mukherjee's speech, which coincided with Wang's two-day stay in New Delhi, was an eye-opener.

"My government will engage energetically with other neighbors in our region, including China, with whom we will work to further develop our strategic and cooperative partnership," Mukherjee said. The speech made no mention of the two countries' trade and investment ties.

Instead, Mukherjee followed with this: "We will strive to make progress in the many initiatives that are ongoing with Japan, especially in the field of building modern infrastructure in our country." He was speaking of a huge New Delhi to Mumbai road project being carried out with Japanese support. But linking Japan to India's infrastructure needs rather than China, which is well known for its skills in this area, cannot have been an oversight.

The first countries named in the speech were the members of the South Asian Association for Regional Cooperation, followed by China. Japan came third, followed by Russia and the U.S. China is definitely of vital importance to India, but Japan's promotion to the third slot was a surprise. The most significant move, and possibly a signal to Washington, was the Modi government's decision to push the U.S. to the bottom of its list of important partners.

It is clear the Modi government is testing the waters and formulating a new worldview. Both Indian and Chinese analysts have predicted their new leaders will opt for continuity, but there is still a lot of uncertainty.

"With little information on hand, it is not a smart move to predict what foreign policy Modi will adopt," Xie Chao, a scholar of international relations from Tsinghua University wrote in China's Global Times newspaper. That much seems clear.